Flood insurance chief claims `no knowledge' of payout discrepancy

The head of the federal flood insurance program on Wednesday startled members of Congress who were examining the insurance industrys response to Hurricane Katrina by saying that he had no knowledge of a widely alleged practice of insurers paying off federal claims while denying private insurance payments.
I have no knowledge of any claims paid by the program that should have been paid by wind policies, which is administered by the private sector, David Maurstad, of the Federal Emergency Management Agency, told a House panel.
Maurstad said under questioning that when both wind and water damage occurred, FEMA paid the damages as a matter of policy.

WASHINGTON—The head of the federal flood insurance program on Wednesday startled members of Congress who were examining the insurance industry's response to Hurricane Katrina by saying that he had "no knowledge" of a widely alleged practice of insurers paying off federal claims while denying private insurance payments.

"I have no knowledge of any claims paid by the program that should have been paid by wind policies, which is administered by the private sector," David Maurstad, of the Federal Emergency Management Agency, told a House panel.

Maurstad said under questioning that when both wind and water damage occurred, FEMA paid the damages as a matter of policy.

Rep. Gene Taylor, D-Miss., demanded that Maurstad provide the legal basis for the federal government paying claims of wind and water damage.

Insurers administer the flood insurance program, setting up what several lawmakers like Taylor said is a conflict of interest.

Homeowners along the Gulf Coast have charged that often the same insurance adjuster would hand them a check from the federal flood program but deny them any claims from wind damage, which is covered by homeowners insurance.

"You guys are literally the puppets of the insurance industry," Taylor said at the hearing of the House Financial Services Committee's Oversight and Investigations Subcommittee. "What concerns me is the total lack of oversight of taxpayers' money."

Although he isn't a member of the panel, Taylor and other Gulf Coast lawmakers were permitted to question witnesses.

Rep. Bennie Thompson, D-Miss., who also attended the hearing, afterward gave his reaction to Maurstad's position: "Unbelievable."

"We're not a blank-check agency," he said of the flood insurance program, which paid $21 billion in claims after the 2005 hurricane. The program had to ask Congress for additional borrowing authority three times last year to cover the payments.

Mississippi Attorney General Jim Hood, who also testified, said there were 630 federal cases on the gulf that were settled but many "with zero from the insurance companies."

"The federal flood program paid 100 percent," Hood said. "There was damage caused by wind that was not paid."

In response to the hearings, Mike Fernandez, State Farm's vice president public affairs, said in a statement: "State Farm sent a memo to its claims adjusters, but it encouraged them to look for evidence of wind damage (not discourage it as Rep. Taylor inaccurately indicated). If there was a bias, there was a bias to pay claims, not deny them. State Farm has settled more than 295,000 claims and paid more than $3.1 billion associated with Katrina—84,700 and $1.1 billion in Mississippi."

The hearing covered a range of insurance issues, including allegations of falsified engineering reports, a State Farm Fire and Casualty Insurance Co. memo that directed insurance adjusters to find water damage but not wind damage, and the industry's record profits.

Subcommittee Chairman Mel Watt, D-N.C., said that the panel, which doesn't have jurisdiction over legislation, had a mission "to get the facts and to build a factual record." He said hearings would continue on the insurance aftermath's impact on consumers.

Taylor gave an impassioned presentation, showing blown-up pictures of the Bay St. Louis homes of the Joseph Benvenutti family and the John Hadden family before and after the hurricane. The families received "zero" for their insured homes, which have been reduced to slabs, he said.

"Company officials instructed adjusters to assign all damages to the federally backed National Flood Insurance Program in cases where wind caused much of the damage," Taylor said.